PORTLAND, Maine — A surge of viable economic activity in Maine may help push the state’s business climate in a more positive direction.
Although some business analysts say this mirrors the national trend, others are more cautious. Deals of late that have caught notice involve millions of dollars and the potential for expanding jobs.
Oklahoma’s NGL Energy Partners LP announced on April 23 it was acquiring Brunswick-based Downeast Energy Corp., a 104-year-old home-heating company. The deal closed on May 2 for an undisclosed amount of cash and stock.
That same day, Beam Inc. said it was buying the Pinnacle Vodka and Calico Jack brands from White Rock Distilleries in Lewiston in a $605 million deal that includes the bottling facility and 180-person work force in Maine.
And the next day, Camden National Bank announced its acquisition of 15 Bank of America branches throughout Maine in a $20 million deal that boosted its market share, making it the largest bank based in the state — third in size only to TD Bank and KeyBank. The next week, on May 1, a smaller bank deal was announced. Bar Harbor Bank & Trust said it would acquire Border Trust’s three branches and its assets in a $1.16 million deal.
While Maine businesses produce their fair share of news, this was a vigorous spate of merger and acquisition activity. So what does it mean?
“I think you have to look at each one individually, not necessarily all as a trend,” said Joseph McDonnell, dean of the College of Management and Human Service at the University of Southern Maine.
That said, McDonnell added, “Typically, when companies are doing better, they have more cash, they have easier access to credit, and their stock is more valuable — which allows them to purchase with the stock, if that’s what they choose to do.”
Matthew L. Caras, founder and principal at Leaders LLC, a Portland-based firm that advises on mergers and acquisitions, said his company’s activity over the past five months or so has been “phenomenal.”
From buyers and sellers making inquiries of Leaders, to companies actually engaging the firm to represent them in sales or acquisitions, to shareholder and management buyouts, business has been busy, said Caras. The activity, he said, mirrors trends nationwide.
And the increase in business, starting in November and December of last year, was abrupt and significant, he said.
But, said Caras, he doesn’t see any real reason behind the increase. It may be from pent-up demand, he said, because deal activity has been low. Company valuations have increased, Caras noted, as business is picking up. So some companies may be thinking about using that increased business revenue to fund acquisitions. Other companies may eye their increased valuations as an opportunity to sell, like when homeowners wait for the market to come back before putting their house up for sale.
But the general business activity — and the White Rock, Camden National and Downeast Energy deals, in particular — aren’t indicative of any common theme or trend, Caras asserted.
“There’s no question there’s an increase in activity, but there’s no common reason. [The recent deals] don’t say anything about the Maine economy; you can’t reach any conclusions because of those transactions,” said Caras. “We have good assets in Maine. If you’re a good business in Maine, you’re constantly being called by strategic buyers.”
McDonnell noted that Maine’s business demographics also lead toward acquisitions.
“The fact that Maine is a state with many small or middle-sized businesses would tend to lend itself toward this,” said McDonnell. “As businesses seek to get larger, they would seek to acquire smaller companies as one way to grow, rather than trying to grow internally. We should not be surprised about this kind of activity.”
Caras noted there are other Maine companies that have made acquisitions beyond state borders. His firm was retained by Hussey Seating in North Berwick to run an acquisition program. Hussey acquired two different firms, the latest an Illinois company last November, said Caras. That deal led to Hussey hiring about 50 more people to work in North Berwick, he added.
More recently, on Friday, South Portland-based Wright Express Corp. announced it was acquiring a United Kingdom company in an all-cash, $27.5 million deal.
Merger and acquisition activity tends to be high in the fourth quarter, noted Ronald A. Nykiel, dean of the College of Business at Husson University. This recent surge in Maine may be because companies had extra cash that didn’t get invested in the fourth quarter, he said.
The deals happened for different reasons, said Nykiel.
Camden National was in a Maine banking battle of local brands. Most have been growing organically, with slower expansions a branch at a time.
“They pulled off a coup, flipped the deck and said, ‘We’ll do it all at once,’” said Nykiel. “They basically took themselves from local to statewide in one move.”
In the case of NGL’s acquisition of Downeast, Nykiel said there’s a lot of cash available in the energy sector but expansion takes a long time and represents a high capital investment.
But a quick way for a company to expand its market — in this case, geographically — is through an acquisition, which can bring a much quicker return on investment if the acquired business is generating cash.
Looking at the White Rock-Beam deal, the larger company may have seen an acquisition that could add to its earnings without adding much to overhead, said McDonnell. Beam already has offices for sales, human resources, accounting, logistics, marketing and other business basics. he said. In acquiring a popular brand such as Pinnacle, Beam possibly saw a chance to take the product to a higher level in terms of marketing and distribution, increasing sales but not overhead.
“It becomes a good strategic fit,” said McDonnell.